ROI (Return on Investment)
A performance metric measuring the profitability of an investment relative to its cost.
Definition
ROI, or Return on Investment, is a fundamental financial metric used to evaluate the efficiency and profitability of an investment. In marketing, ROI measures how much revenue a campaign or initiative generates compared to its total cost.
The basic formula is: ROI = (Revenue - Cost) / Cost × 100. A positive ROI indicates profitable activities, while negative ROI signals losses. Marketing ROI helps businesses justify spending and optimize budget allocation across channels.
Why It Matters
Understanding marketing ROI is essential for demonstrating value to stakeholders and making data-driven budget decisions. Without tracking ROI, businesses waste resources on underperforming campaigns while potentially underinvesting in high-performing channels.
ROI analysis enables marketers to compare different strategies objectively, prioritize initiatives, and continuously improve campaign performance over time.
Examples in Practice
A company spends $10,000 on a paid advertising campaign that generates $35,000 in sales. The ROI is 250%, meaning they earned $2.50 for every dollar spent.
An email marketing program costs $500 monthly but drives $8,000 in attributed revenue, delivering a 1,500% ROI—significantly higher than most other channels.
A brand awareness campaign shows lower direct ROI but contributes to higher conversion rates across all channels, requiring multi-touch attribution to measure accurately.